JPMorgan Private Bank On The "Quixotic" End To Europe's Latest (Failed) Grand Experiment

One of the more persuasive analyses on the fate of the EMU that we have read recently, comes, oddly enough, from JP Morgan, although not from the firm "proper" but from its somewhat more iconoclastic Private Bank division (which manages portfolios for the ultrawealthy). At the core of the argument, which is far more subtle and nuanced than any report by Ambrose-Evans Pritchard, yet which reaches the same conclusion on the viability of the Eurozone, is the now accepted schism between the core and the periphery, in virtually every aspect of their economies: "how can the European Central Bank simultaneously maintain the “right” monetary policy for inflation-phobic Germany and the weak periphery at the same time?" What many don't know, however, is that this very dichotomy was the reason for the collapse of the first attempt at a monetary union in Europe, the European Exchange Rate Mechanism, which ended with a loud thug back in 1992, "when the UK needed a much weaker monetary policy than Germany, which was overheating in the wake of Unification stimulus." Of course, instead of taking no for an answer, Europe merely upped the ante and layered monetary unification on top of an artificial political and customs union. The current state of affairs is all Europe has to show for it. So what happens next? Just as Dylan Grice suggested on Friday that China may have realized that its inflationary endgame has now entered its "out of control" phase, so too perhaps Europe, now accepts the realization that the same unsuccessful outcome as 1992 is inevitable and the premise of a European Union can finally be shelved. Yet in a world in which, as JPM claims, the need for an artificial European union to preserve the peace ended in 1954, and the far more critical peace-perpetuation mechanism - global corporatocracy - is far more important, perhaps Europe should instead focus on doing all it can to promote the interests of various multinational corporations, whose viability may be far more important to Europe's continued non-wartime status. Or perhaps that is the idea all along - with corporate viability more reliant on a healthy banking sector than anything else, are Europe's taxpayers now expected to pay for the 50+ years of peace and social welfare they have received by rescuing the various banks whose bad investments would not sustain one day without an explicit and implicit sovereign backstop. Is Europe essentially saying that should Europe's banks be impaired, that war will certainly follow? Or if the message is not too clear yet, perhaps it will be made soon enough...

From JPM Private Bank:

A Don Quixote Thanksgiving

The diverging economic conditions between Europe’s core and periphery are severe, but not insurmountable1. However, a flaw in Europe’s creation myth may lay at the heart of the inability of the European Monetary Union to survive over the long run. As Europe deals with its latest weak link (Ireland), I am reminded of Don Quixote, who among other things, went on a difficult journey for all the wrong reasons. For Europe, the EMU may turn out to be the same. First, the economics.

The Periphery and Pompeii

Peripheral Europe (Greece, Portugal, Ireland and Spain) is dealing with the aftermath of a consumption boom gone wrong. As we discussed in our “Sick Men of Europe” paper last February, a pattern of faster consumption, growing current account deficits and a loss of competitiveness began in the Periphery almost immediately following the adoption of the Euro.

In the wake of the global recession, like Pompeii, growth in the Periphery is frozen in time while Core Europe has revived. One reason: home prices actually rose more relative to income in Spain and Ireland than they did in the US (see below). Recall as well that while banks grew to be 100% of GDP in the US, in Spain they grew to 200% of GDP, and in Ireland, 400% of GDP (that’s why GDP measures may not be the best barometer of event risk). Irish banks essentially became European banks in the broadest sense of the word. But who pays the freight if something goes wrong? More on that later.

Another sign of Core Europe’s revival: Germany (15x the size of Ireland) is doing quite well, and represents a large part of the European equity holdings that we do have in portfolios (see post-script for more on European equities). As shown below, German unemployment is at a 20-year low, and there are increasing signs of labor shortages reported by German manufacturers. These are “good” problems to have at a time of low global growth, particularly across the developed world.

But this is part of the problem: how can the European Central Bank simultaneously maintain the “right” monetary policy for inflation-phobic Germany and the weak periphery at the same time? This conundrum lay behind the collapse of the prior monetary union in Europe, the European Exchange Rate Mechanism. This effort collapsed in 1992, when the UK needed a much weaker monetary policy than Germany, which was overheating in the wake of Unification stimulus.

As Maastricht orthodoxy is imposed on Greece and Ireland, we are reminded again of how infrequently belt-tightening has been attempted without an exchange rate devaluation to help cushion the blow. The chart above plots current fiscal adjustments in Europe (orange) compared to prior ones in Europe and Latin America (yellow). No one (other than Latvia) has tried this before: large fiscal adjustments in a low-growth, no-devaluation environment.

In Ireland, austerity measures have simply led to lower growth, lower tax revenue and more austerity. Pursuing this course of action to repay foreign bondholders is causing political and social pressure (as well as 8% real interest rates) which we do not believe can be withstood in the long run. As things stand now, the Irish bank bailout may cost 8-10x more than its US equivalent (TARP). The “Irish Bailout” is more a bailout for Ireland’s lenders (European banks and the ECB) than for Ireland itself, as Irish taxpayers are stuck with the bill.

Optimists concede problems in Ireland but point instead to improvements in Spain, which is 6x the size of Ireland. As shown, while Ireland has become more reliant on the ECB, market conditions for Spain improved after bank stress tests this summer, which allowed Spain to reduce its borrowing from the ECB. Improvements in Spanish credit markets unleashed an array of “Mission Accomplished” banners, mostly from strategist and economists that work at European banks.

However, let’s not get too excited about Spain just yet. In a world of US Fed bond purchases and Asian currency intervention driving down rates, the desperate thirst for yield is helping Spain sell its debt, and is a natural market stabilizer of sorts. But…Spain’s Q3 GDP growth was zero; the service sector (60%-70% of the economy) has rolled over; car sales are down 40% to their lowest level in 20 years after the expiration of an incentive program which ran out in June; the improvement in Spain’s trade deficit reflects a massive, unhealthy collapse in imports (see EoTM 6-7-2010); and unemployment remains over 20%, possibly a reflection of Spain’s limited labor mobility, one of the lowest in Europe.

One key thing to watch in Spain: the Achilles heel of the EMU, competitiveness gaps between countries. There are a lot of ways to measure this; below (left) we look at unit labor costs. While the difference between Spain and Germany is not rising anymore, the gap is still large. How big is this gap? For comparison’s sake, we show as well the widest labor cost differentials across US regions over the same time frame. While the Fed’s challenge is a large one, at least it is dealing with a more homogenous set of economic conditions.

This is not “new news”: such problems were highlighted within Europe well before the recession hit. The German Institute of Economic Research2 looked at labor cost divergence in 2007, and was concerned about what they found: permanently higher rates of labor cost increases in Portugal, Greece and to a lesser extent, Italy; labor-cost differences that were much greater in Europe than across US states or German Lander; and a loss of competitiveness, such that countries might experience excessive investment in housing, lower productivity and higher structural unemployment.

Their conclusion:

“Prolonged boom-and-bust cycles as a result of divergences might actually endanger the political stability of the euro-area. A country which finds itself at the beginning of the bust leg of a business cycle amplified by the structure of EMU might find the idea of leaving monetary union increasingly attractive. Leaving the union would allow the country to depreciate sharply and forego the adjustment costs of relative wage deflation …..”

As we noted in our Sick Man of Europe article, UK stocks rallied sharply in 1992 after they left the ERM and were able to engineer their own monetary policy.

Flaws in the Creation Myth of Europe3

In the wake of the 1992 ERM collapse, why did Europe attempt another monetary union given large differences in language, labor mobility and productivity? It makes sense if seen as part of a broader effort to create a United Europe, both politically and economically. A few years ago, Swedish and Dutch politicians responsible for mobilizing support for the EU Constitution referred to “Yes” votes as necessary tribute to honor the dead from the Second World War, and more urgently, to avoid the pre-war divisions which led to it. Conflict between European empires existed for hundreds of years (1871-1914 was the only period of peace in European history until 1945), so the idea of a united Europe would have seemed appealing in 1945. However, conditions for securing a lasting peace within Western Europe were arguably already in place by 19544:

The Soviet threat rendered any lingering grievances moot, as did the large presence of US and British troops

Unlike reparations imposed on losers in the wake of WWI, vanquished countries received aid after WWII (Marshall Plan)

By 1954, Germany had become a stable, liberal, democratic society, one of the most amazing transformations in history given what preceded it. Just ten years earlier, rather than surrender after Allied victories in Africa, Russia and Italy and the Normandy invasion, Germany kept on fighting, losing 1.8 mm soldiers in 1944 and another 1.6 mm in 1945

To summarize, Europe seems to be on a Quixotic quest for mechanisms to support a peace that had already been obtained by1954, or shortly thereafter. As a result, the European creation myth of the 1990’s (“Europe must accept supranationalpolitical and economic structures to prevent future conflict”) may be flawed. Such a flaw, to the extent that Europeans nolonger believe it, may explain a lot of things, from public referendums rejecting the EU constitution; to the lack of widespreadsupport for regional transfers; and the reluctance of countries like Ireland to yield sovereignty over their fiscal affairs5. Takento its logical conclusion, the European Monetary Union may continue to struggle under both the strain of its economicinconsistencies, and the weakness of its political roots.

The author of the 1992 German Constitutional Court opinion on Maastricht described this issue in plain terms. The treaty…

“…is not able to support its own premise: the common ground of a European Staatsvolk which belongs together: a minimum of homogeneity in basic constitutional attitudes, a legal language accessible to all, economic and cultural similarities or at least some forces of approximation, the possibility of political exchange through media, which reach the whole of Europe, a leadership known in Europe and parties active across Europe. A Europeanisation without a prior European consciousness and therefore without a European people with a oncrete capability and readiness for common statehood would be, in terms of the history of thought, un-European.”

Support amongst EU countries for EU membership is close to its lowest levels since the surveys began in 1973 (see chart). To be clear, this paper is about the durability of the current European Monetary Union and the risk of bondholder losses, not the viability of the EU as a political entity. But as support for the latter wanes, steps that need to be taken to support the former may be more difficult to achieve.

The European Financial Stability Facility does suggest that Europe understands the need for fiscal transfers to get through this crisis. Ireland may now draw upon it, and its creators see it as a bridge to a more secure monetary union. It is designed to allow member countries to straighten out their finances, refrain from having to issue in the debt markets for 3 years, and then come back to the debt markets once they run Germanic fiscal policy, but with debt/GDP ratios well over 100% and stuck in a rut of low growth. It’s a great vision and makes total sense on paper. I think I see a windmill in the distance…

Michael Cembalest

Chief Investment Officer

Postscript: on investments in Europe

Ten-year Irish debt is currently pricing in an 80% probability of a default (55% for Spain). Some hedge funds and high yield funds we invest with may find value here, as a lot of bad news is priced in. However, our managed fixed income funds aim for steady income and capital preservation, so they generally do not hold much Ireland, Portugal, Spain or Greece debt. We have been investing in bank non-performing loans and distressed corporate debt in Europe, opportunities we expect to continue as the European banking system continues to shrink. Given the current reliance on the ECB, this process has a long way to go.

On European equities, we have highlighted before the large degree of non-European revenue earned by European companies. That explains why European equities have over long periods of time kept pace with other markets despite low nominal growth. This year and since January 2008, however, European equities have trailed the S&P 500 in local currency terms (“European equities” include countries like the UK, Denmark and Sweden; EMU equities trailed the S&P by even more). Our European equity holdings have been tilted towards German mid-cap exporters, which have outperformed the rest of Europe and the US as well.

In terms of valuation, European equities trade somewhere around 10-12x earnings, so like the peripheral European bond markets, there’s a lot of pessimism priced in. We have a regional equity preference for the U.S. and Asia in our portfolios at the current time, but it cannot be said that European equity markets are unaware of the challenges facing the EMU.

1 The regions of the United States, for example, experienced tremendously divergent economic conditions during the depressions of the 19th century and the Great Depression of the 20th. Throughout these periods, monetary and labor conditions converged and a system of fiscal transfers was put in place to endure them. In prior “Eye on the Market” notes, we covered the convergence of labor costs in the Northeast and Midwest from 1820 to 1900, and the fiscal transfers which took place from the Northeast to the Midwest during the Great Depression, when farm prices fell by 40%.

2 “Does the Dispersion of Unit Labor Cost Dynamics in the EMU Imply Long-run Divergence?”, Dullien and Fritsche, Deutsches Institut fürWirtschaftsforschung, Berlin, March 2007.3 This section draws heavily on an article by Bernard Connolly, now CEO of Connolly Global Macro Advisors, “Monetary Union: a political impossibility theorem”, Banque AIG Market Intelligence Update, May 2005.4 This view is supported as well by Stanford University’s James Sheehan in “Where have all the soldiers gone”, which describes the turning point for Europe as 1945, rather than 1968 or 1989.5 While Ireland may accept bilateral EU and IMF money, it has so far resisted giving in on the greatest thorn in the side of ContinentalEurope: its 12.5% corporate tax rate.

The “Irish Bailout” is more a bailout for Ireland’s lenders (European banks and the ECB) than for Ireland itself, as Irish taxpayers are stuck with the bill.

*Cough*

So the theory here is that the Irish have borrowed a lot of money but have not spent that money and it went up *poof* in thin air?

Wow! :-)

Really, ring-wing ideologists need to come to terms with reality: the 'Celtic Tiger', the state with super-low tax rates and sparse government regulations, the austerity musterchild who implemented the quickest and most savage austerity measures after the financial crisis is one big walking failure.

Here are a few simple questions:

If 'austerity' reduces productivity as much as it did in Ireland, how are 'austere' nations supposed to pay back their debts?

If the shrinking Irish economy is having such a knock-on effect on housing prices and on bank assets, why is it good to have austerity to begin with?

Where exactly was the advantage of their super-low tax rate, if they are in such a big mess now? Should they have taxed higher, to build a sizable sovereign fund in the 'good times', which would act as a cushion for the 'bad times'?

How come that high-tax, active government, no-austerity keynesian stimulus countries like Germany are growing and are expected to pay the bill now? How come they have the money ... while the conservative economic model wunderkind Ireland is on the brink of the biggest bank run in history?

[...] the "core" EU members used their superior banking system clout to run mercantilist policies within the EU to the peripheral lower-clout nations.

Oh, that's new - so you need 'clout' to implement a low-tax regime and to implement savage-austerity measures? I.e. the 'Celtic Tiger' was in fact clueless?

Had they instead implemented a fool-proof keynesian stimulus policy like Germany, saving up in prosperity and spending in times of need (instead of the wrong way around suggested by monetarists: spending in good times and saving in bad times), they'd be off just as good today as Germany?

That indeed answers my questions although I'm not sure you wanted to affirm them ;-)

[...] the "core" EU members used their superior banking system clout to run mercantilist policies within the EU to the peripheral lower-clout nations.

Btw., this statement is funny in itself. Do you realize that mercantilism mainly works by restricting imports while encouraging exports. Do you also realize that the EU implements a shared (no restrictions) marketplace for goods and for banking? That makes mercantilism towards other eurozone countries rather ... hard ;-)

Mercantilism is certainly done by most economic zones, such as China and the EU - towards external partners. The main tool of mercantilism in the case of China is to use government capital control to set the FX rate of the yuan artificially low - this keeps their trade surplus positive towards all developed nations and keeps their wages low - while suppressing imports as well. The EU engages in weakening their currency (and subsidizing EU-internal production) as well - but in a less state-controlled manner than China does it. (To a lesser extent import tariffs are used for mercantilism as well.)

Considering that there are no import tariffs allowed between EU states, and that the FX rate between Germany and Ireland is fixed at 1:1 (both are using the Euro as a currency), how do you fancy is Germany able to effect 'mercantilism' against Ireland? :-) [1]

Inquiring minds want to know.

Unless you can offer a good description of the 'mercantilistic' conspiracy of 'core Europe', I'll offer another, much simpler explanation: Ireland was stupid by using low taxes to attract economic players and not saving enough to cushion future shocks in a keynesian manner - like Germany did it. They also did not build up enough high quality domestic production with qualified domestic workforce - a big portion of their 'growth' was in fact mobile foreign players like Microsoft or Google who used Ireland as a jump point in the 'Double Irish' and 'Dutch Sandwich' accounting schemes to evade US (and 'core Europe') corporate taxes. The Irish financial sector also grew disproportionately as a result of this - a malinvestment. Then in 2008 Ireland got caught with pants down (no sovereign funds) by a big financial crisis, and implemented a second stupid policy: 'savage austerity now'. That really killed their ability to pay down debt - and further depressed asset prices in Ireland, squeezing their banks.

Germany and France will bail them out of course, at the cost of Ireland having to eliminate their corporate tax loopholes (which siphoon funds away from Germany/France) - while this is a windfall for the Irish who spent on stupid things in prosperity and did not save, the hands of Germany and France are forced as their own banking systems have too much Irish exposure. So the german and french taxpayer will pay the costs of these bailouts - not the Irish taxpayer, as this article posits.

So it is kind of ironic that a keynesian countries are bailing out austrian economics countries ... again.

[1] Arguably when weak economies like Estonia join the eurozone then the initial phase can be considered advantageous to 'core' EU countries - and can hence be indeed mercantilistic: as the strong Euro (and integration laws) forces wage rises in the periphery country while hurting exports of these less established players in the eurozone. Countries that join the eurozone still generally consider the benefits to far outweigh the costs. There's also a reverse process: german and french production flows to lower-wage peripheral countries - and does so without resistence and without Germany or France being able to enact protectionarist measures. In the case of Ireland this initial phase of eurozone integration, if it ever existed, is long over.

for me the answer is simple to these actually..."very well thought out questions." it is "a blanket gurantee of all bank deposits no matter the limit." So just who are the "euro-landers" bailing out? apparently "it's the depositors and not Ireland." Needless to say "those depositors are overhwhelmingly from outside Ireland" and "they're pulling they're money out of the banks" and "Bringin' it on Home." In the USA "they did raise the insured limit" although I believe the failure on Indy-Mac did result in massive and immediate losses for some very wealthy families and institutions. I will say "since they refuse to allow actual bank failures in the US" where depositors actually lose their savings above the insured amount "how is what the USA doing any different"...save for "it save's the State" whereas in Ireland Euro-land is throwing the Irish State and by extension its Government under the bus."

So just who are the "euro-landers" bailing out? apparently "it's the depositors and not Ireland. [...]

Certainly - but you have to consider that Ireland has borrowed those funds and has spent them (i.e. it owes them), and that a large part of the debt is also internal to Ireland and a bail-out will help both external and internal creditors.

So by bailing them out (see my other posts above) the german and french taxpayers are bailing out Ireland. Clearly out of self interest (they'd let Ireland default otherwise): partly because their own institutions are affected, but in larger part because bank runs are contagious and they dont want them to spread to Portugal, Spain or (the big elephant in the room) Italy. (They also figure that right now the bailout is cheaper than the reintroduction of the Deutschmark, the Frank, the Peseta, the Lira, etc.)

So to suppose that the only beneficiaries of the bailout are external creditors and that the Irish will 'pay for the bailout' is naive at best - of course they will pay, they borrowed the funds (and most of them at very low rates) to begin with ...

When you boil it all down, it is the "something for nothing" syndrome. The one European currency dream resulted in small, non-competitive countries eating more candy than they could afford otherwise, and now they have one hell of a belly ache.

The solution, naturally, is let them have more candy. The same process is happening in the U.S.

Central Bankers and their Puppet Masters created this mess, and these very same schemers (by default) are "fixing" the mess. The solution to central bank created asset bubbles is more asset bubbles. Inflation is rampant, exceeded only by the propaganda that we are in disinflation.

Blame not the Irish, blame the academics and dreamers in Brussels.

Rather than helping to ensure a " peaceful "Europe, the one-currency Euro policy has doomed Europe. Thatcher was right all along.

Well, there are certainly examples of export oriented countries that are doing well: Germany for example.

It was hurting when demand was drying up, but it cushioned it with big 'automatic stimulus' spending for a year until the worst of the storm was over, and then it was able to produce cars, machines etc. for China with a fully working and fully employed industrial sector - while the US and other developed nations let those sectors go bankrups, downsize, etc.

It's very risky if a demand slump is permanent - but it works very well for temporary shocks such as this one. Check how well Germany did wrt. unemployment, compared to other EU countries:

You are right....but as the 800 pound gorilla in the room, they can dictate their own terms as to how that doo-doo is ultimately dealt with. Remember, they are all under one currency, but a currency the germans can devaulate if they so desire by purchasing Dollars. A currency devalue in the EU drives their debt down.

The bankers from Germany helped inflate the bubbles everywhere else. Regulation too effective in Germany for them to try it there, I guess.

I found the one comment in the report interesting, they JP Morgan Private Bank, are purchasing NON-performing corporate loans. Hmmm, like the ones backed by collateral which you are looking to seize? This whole crisis has conveniently resulted in the banking industry getting their hands on A LOT of collateral, in exchange for digital 1s and 0s, created out of nothing, at the moment the 'loan' was agreed.

We need to come up with a new word. 'Loan' sounds like you are giving something YOU ALREADY HAVE. Bankers don't ALREADY HAVE the money they lend you, it is created out of nothing!

History has shown that when delusional and/or corrupt politicians and banks fail to find remedies for their delusion and corruption, they start wars. Now all we have to figure out is who is going to war with whom, or do they just let Pakistan enable Iran to Nuke the Saudis; now that would get everyone's mind off the global economic chaos.

It really is time for the Irish people to say fuck it! Let the banks pay their own bills. If the French, German and UK banks don't like well that's too bad. It's not Ireland defaulting it's failed businesses defaulting. Only the idiot politicians turned it into sovereign debt. A change of govt. can change that policy.

Ireland stood on it's own hind legs before the EU. They can do it again. It cannot be any worse than what's on offer right now. Ireland will default on it's current trajectory.

If one thinks about it, the canary in the coal-mine for the EU has always been the strange position of the UK.

They got all the supposed "benefits" but got to keep their own currency?

To me, that makes it obvious that the EU is just another game, played by the play-book of THE CITY OF LONDON.

Like all experiments coming out of that cess-pit, the EU came with a use-by date, which is clearly fast approaching. And Germany, the other great Empire pretending to be a democracy, is as much a part of the planned de-construction of the EU.

Nothing changes. UK/Germany/France and possibly the bumbling Italianos, still at the heart of the scrouge currently ravaging us all.

Throw in the Dutch Bilderbergers, The Vatican, hoe of the Pon-stiff (y) and "neutral" switzerland (should be called Swindlerland) and you have the recipe for a mass deception of staggering proportions.

A flexible and fluid NWO must be. Experiment after experiment, realigning, scheming, finding the snake winding way to achieve a particular goal. A planned and purposeful deconstruction of their EuroShack must be frustrating. But for what reason? A single paper or gold fiat currency to replace the euro and FRN?

I can hear J Lennon singing;

"Imagine all the people, exchanging debt notes in the EU and NAU... yoohoo oooo... you may say, I'm a dreamer...

I sincerely doubt the Globalists are planning a return to sound money (not by free will, any way). Obviously their hand will be forced if people lose all faith in their fiat currencies and start using precious metals. So they will probably try to keep PM markets quite volatile, even if they can't possibly depress the price forever.

So that means a global fiat would be the 'ideal solution'. You would want all the benefits (printing money, bitches) of the current system, with more global control, and LESS national sovereignty (the global currency would answer to no one, but pretend to be doing what is best for everyone, naturally)

Personally, I think they want these fiats (Euro, USD, Pound, Yuan, Yen) to all be on the deathbed at the same time, and all of those countries in severe economic difficulty. Best way to do that would be collective currency devaluation, the slow road to hyperinflation = loss of faith in fiat.

But obviously you (Oligarchy controlling Mainstream Media) would want to misdirect people all the way, and not making it about replacing fiat currency, just about 'global economic co-ordination' or new 'global tools', or ending the global recession, etc. This would provide the ideal platform to implement a new reserve currency. Of course a(nother) war would help, too.

First, the UK is not the only one that kept their currency and even if they didn't, why would that be bad for the City? The elite would surely be capable of getting what they want anyway. As for the benefits, taxpayers of the UK send money to the EU at a rate of about $50 million per day, IIRC (according to Farage). And the conspiracy rant about Germany, Switzerland and others is insulting and unworthy of discussion.

The EU may not last long, but the first half of your post is totally wrong.

NP, if you were a sovereign nation, would you rather keep your currency or join a group of other nations and lose said sovereignty? Rothschild said, and i paraphrase... give me the power to control money and laws can be damned, etc. The UK retained it's sovereignty. For whatever is coming. The 50 mill is the price to pay for all the other benefits that accrue from being a part of the EU (and there are some, bad as they may be in reality).

As for the rant, you might want to read up some real history and differentiate truth from conspiracy. Plus, if what I said counted as a rant, well, you clearly ain't read a rant yet.

How much do you know about the Vatican and the role of Jesuits in world history, just for starters? Or of Swindlerlands role, their purported neutrality, the Red Cross...

The research areas of most banks (im not talking sell side equity reports) are usually half decent. This one comes from the PB group of JPM which is less bullshit then elsewhere - after all they manage rich people's money. If they do poorly, the rich people walk away and go to any other Swiss private banker..

And this wasn't especially distributed to ZH, these are widely available if you are a client of the firm or have access to firm research.

The Euro is the first non nation state currency and it marks its gold holdings to market every quarter. The paper Euro has risen 60% against the dollar since its inception and we all know what the gold side of the Euros balance sheet has done since its inception.

The EU has more gold then the US and it is China's largest trading partner.

I just laugh when I see somebody write that the Euro is a failed experiment.

It has certainly been a success in proving to the central planners that a single currency managed under the spending patterns of a variety of governments is doomed to failure. Who coulda known that German manufacturers and taxpayers would ever get upset with having to subside French farmers and English hospital patients?!

They won't make that mistake again! "Single Central Government, or Bust!" will be their campaign slogan next time around.

That's also why they now won't introduce an 'Amero' to a North American Union. It's also why they will definitely shoot for a single world government when/if they succeed in implementing a single global currency.